POISED FOR TAKE OFF

DESPITE CEMENT INTENSITY HOLDING A PREDICTED 2015 BOOM IN CHECK, 2016 AND BEYOND LOOK TO BE ROBUST, THANKS IN LARGE PART TO A NEW TRANSPORTATION BILL

Cement consumption in the United States will continue to grow, albeit at a slower pace than predicted at the beginning of 2015, according to a new report from the Portland Cement Association (PCA). The United States’ cement market is expected to increase by 3.5 percent in 2015 to just shy of 92 million metric tons of total cement consumption, followed by larger rates of growth in 2016 and 2017, 5 percent (to 96.4 million metric tons) and 5.7 percent (to 101.9 million metric tons), respectively.

A year ago, PCA had forecast the nation’s cement consumption to soar beyond 95 million metric tons in 2015. “A slowdown in cement intensity [referring to the tons of cement per dollar of construction activity] is a significant contributor to the revised forecast,” says Edward J. Sullivan, chief economist and group vice president at PCA. “The main indicators pointing to lower intensity levels are uneven regional construction activity, a slowdown in the number of starts, and the increased use of supplementary cementitious materials in concrete.” Lower oil prices have significantly reduced construction activity in energy-dependent areas such as Texas and North Dakota, Sullivan adds.

Sullivan sees cement and clinker imports finishing up 2015 at about 10.08 million metric tons, 20.1 percent higher compared to 2014 levels; staying at about the same in 2016 (up 0.2 percent over 2015 to just under 11 million metric tons); and surging ahead another 27.5 percent in 2017 to 12.87 million metric tons, with double-digit increases into the foreseeable future.

U.S. Cement Consumption Forecast

(000 Metric Tons)

2014

2015

2016

2017

2018

2019

2020

Total Cement Consumption

88,747

91,847

96,428

101,905

107,516

113,528

119,718

Portland Cement

86,496

89,554

94,054

99,409

104,892

110,755

116,713

Masonry Cement

2,251

2,293

2,374

2,496

2,624

2,773

3,006

Percent Change

Total Cement Consumption

8.7%

3.5%

5.0%

5.7%

5.5%

5.6%

5.5%

Portland Cement

8.7%

3.5%

5.0%

5.7%

5.5%

5.6%

5.4%

Masonry Cement

5.9%

1.9%

3.5%

5.1%

5.1%

5.7%

8.4%

Source: Portland Cement Association Chief Economist Ed Sullivan

Going forward, Sullivan states that the underlying economic fundamentals are still strong, as reflected in the labor market. Sustained gains in monthly job creation in excess of 225,000 net new jobs monthly, in the context of sub-6 percent unemployment translates into more consumer spending power, stronger state and local tax receipts, all leading to stronger construction spending in 2016.

With the passage of a five-year federal transportation bill, cement manufacturers will see a rise in consumption, according to PCA. Signed by President Obama on December 3, the Fixing America’s Surface Transportation (FAST) Act will provide more than $305 billion to maintain and improve the nation’s roads and bridges. Cement consumption figures’ largest impact will reflect on authorizations from the Federal Highway Administration (FHWA).

According to Sullivan, FAST represents an average addition of 835,000 metric tons annually to the cement industry. Smaller increases occur in the near term (370,000 metric tons for 2016) and larger net increases occur in the furthest reaches of the forecast horizon (1.4 million metric tons for 2020). FAST is seen largely as an improvement over the previous MAP-21. While funding levels are modestly higher, it also represents a multi-year commitment that allows states to engage in multi-year projects.

“Highway investment will jump 5.1 percent in FY2016 and then slow to rates of growth between 2.1 percent and 2.4 percent for [FY2017–2020]. Investment levels will exceed projected inflation by a total of $1.7 billion over five years and beat projected construction material cost increases by $1 billion over the same period. As a result, federal highway investment will see narrow increases in purchasing power through 2020, but the FAST Act’s biggest impact on the highway construction market will be the stability it provides states and the private sector.”

“This critical bill gives state and federal governments the funding certainty essential for informed infrastructure investment,” concurs National Stone, Sand & Gravel President Michael Johnson. “Our industry is ready to get to work and help improve the condition, efficiency and safety of America’s roads, highways and bridges. We commend members of Congress for seeing the value of a robust infrastructure to foster economic growth, maintain our global competitiveness and improve the quality of life for Americans.”

“This is the first long-term highway bill since 2005,” says PCA President James Toscas. “Congress has finally proven to the American people that our nation’s transportation infrastructure is a priority.” Among FAST provisions cement and concrete interests proposed, he adds, are authorization of a federal study to analyze the impact of pavement stiffness on vehicle fuel economy; reauthorization of the Accelerated Implementation and Deployment of Pavement Technologies program; and, Hours of Service exemptions for ready mixed concrete truck drivers (note page 12).

Sullivan anticipates cement usage in public works construction (which includes highways and streets, as well as water supply and sewer systems) to increase 3.5 percent to 39.7 million metric tons in 2015, followed by a 2.7 percent uptick in 2016, to 40.76 million metric tons.

Rounding out the remaining construction markets, Sullivan says residential building should end 2015 consuming 24.2 million metric tons of cement, up 7.6 percent over the previous year; 2016 is forecast to jump 8.0 percent to 26.2 million metric tons. Nonresidential construction is expected to use 15.8 million metric tons of cement in 2015, up 14 percent, with 2016 consumption numbers predicted to hit 16.9 million metric tons, up 7.0 percent.

Another industry indicator reports construction growth is not only predicted to rise in 2015 to 6 percent, but also climb to 7 percent in 2016, reaching $1.09 billion, the highest total since 2008, unadjusted for inflation. The Q315 FMI Construction Outlook forecasts growth for 17 sectors, across residential, non-residential and non-building groups. Manufacturing continued to be the fastest-growing construction sector last year at 18 percent, but other strong markets for 2015 included lodging, office, and amusement and recreation—all experiencing double-digit growth.

DODGE: 6 PERCENT GROWTH IN 2016

A mainstay in industry forecasting and business planning, the Dodge Construction Outlook, projects that total U.S. construction starts for 2016 will rise 6 percent to $712 billion, following gains of 9 percent in 2014 and an estimated 13 percent in 2015.

“The expansion for the construction industry has been under way for several years, with varying contributions from each of the major sectors,” said Dodge Data & Analytics Chief Economist Robert Murray, assessing year-to-date trends in a late-2015 presentation. “Total activity, as measured by construction starts data, is on track this year to record the strongest annual gain so far in the current expansion.

POWDER VOLUMES PROPEL SEAWAY FIGURES

In a year-end report on St. Lawrence Seaway freight volume, Chamber of Marine Commerce President Stephen Brooks observed, “The 2015 shipping season has been a bellwether for North American economic trends. Ships are delivering cement, stone, gypsum, aluminum and machinery to support an eight-year high in U.S. construction spending, along with growth in the automotive sector in Great Lakes states.” Based in Ottawa, the bi-national Chamber of Marine Commerce noted that April–November shipments of cement and stone were up 15 percent and 20 percent, respectively, against 2014 figures for the same period. Shown here is Essroc Cement’s terminal at the Port of Cleveland, whose tenants also include St. Marys Cement.

“Much of this year’s lift has come from nonbuilding construction, reflecting the start of several massive liquefied natural gas terminals in the Gulf Coast region, as well as renewed growth for new power plant starts. Residential building, up 18 percent this year, has witnessed continued strength for multifamily housing while single-family housing seems to have re-established an upward trend after its 2014 plateau. At the same time, nonresidential building has decelerated this year after surging 24 percent in 2014, and is now predicted to be flat to slightly down given a sharp pullback for new manufacturing plant starts and some loss of momentum by its commercial and institutional building segments.”

“For 2016, the economic environment should support further growth for the overall level of construction starts. While short-term interest rates will be going up, given the expected rate hikes by the Federal Reserve, the increases in long-term interest rates should stay gradual,” Murray added. “On the plus side, the U.S. economy continues to register moderate job growth, lending standards are still easing, market fundamentals for commercial real estate continue to improve, and more funding support is coming from state and local construction bond measures.

“Total construction starts in 2016 are forecast to advance 6 percent to $712 billion, with gains for residential building, up 16 percent; and nonresidential building, up 9 percent; while the nonbuilding construction sector retreats 14 percent. If the volatile electric power and gas plant category within nonbuilding construction is excluded, total construction starts for 2016 would be up 10 percent, after a corresponding 8 percent gain in 2015,” Murray concluded.

The 2016 Dodge Construction Outlook offers more specifics, by sector:

Single-family housing will rise 20 percent in dollars, corresponding to a 17 percent increase in units to 805,000 (Dodge basis). Access to home mortgage loans is improving, and some of the caution exercised by potential homebuyers will ease with continued employment growth.

Multifamily housing will increase 7 percent in dollars and 5 percent in units to 480,000 (Dodge basis), slower than the gains in 2015 but still on an upward path. Low vacancies, rising rents and the Millennials’ demand for apartments will encourage more development.

Commercial building will increase 11 percent, up from the 4 percent gain estimated for 2015. Office construction will resume its leading role in the commercial building upturn, aided by more private development as well as construction activity related to technology and finance firms.

Institutional building will advance 9 percent, picking up the pace after a 6 percent rise trending for 2015. The educational facilities category is seeing an increasing amount of K-12 school construction, supported by recent bond measures.

Manufacturing plant construction will recede an additional 1 percent in dollar terms, following the steep 28 percent plunge for 2015 that reflected pullback of large petrochemical plant starts.

Public works will be flat with its 2015 amount, as a modest reduction for highways and bridges is balanced by some improvement for environmental categories. The benefits of the FAST federal transportation bill will show up at the construction site later in 2016 and into 2017.

Electric utilities and gas plants will fall 43 percent after a sharp 159 percent jump in 2015. The lift coming from new starts for liquefied natural gas export terminals will be substantially less, and new power plant starts will recede moderately.

Basu weighed in on 2016’s nonresidential market prospects during an early-November 2015 web conference, where he was joined by his American Institute of Architects counterpart, Kermit Baker, Ph.D., who observed: “Led by tremendous demand for energy-efficient spaces, spending on home improvements is on track to reach an all-time high by year’s end. The office and retail sectors are expected to lead the commercial real estate market in 2016 with near double-digit increases in construction spending.”

“We expect the residential construction sector to continue its gradual recovery as we head into 2016,” added National Association of Home Builders Chief Economist David Crowe, who rounded out the conference panel. “Steady employment and economic growth, along with attractive mortgage rates and home prices will keep the sector on an upward trajectory as we go forward, however persistent headwinds including labor and lot shortages will continue to hinder a more robust recovery.”

CONSTRUCTION SPENDING HITS SEVEN-YEAR HIGH

Construction spending in September 2015 reached a level not seen since March 2008 and climbed at the fastest rate since early 2006, according to an Associated General Contractors of America (AGC) analysis, which also found that nonresidential project outlays declined by 0.1 percent between August and September as growing workforce shortages likely impacted the volume of work contractors were able to perform for the month.

“Overall demand for construction continues to grow at a very robust rate,” said AGC Chief Economist Ken Simonson. Construction spending in September 2015 totaled $1.094 trillion at a seasonally adjusted annual rate, 0.6 percent higher than the August total and 14.1 percent higher than in September 2014, he added. In addition to construction spending reaching a seven-year high, the year-over-year growth rate was the strongest since January 2006.

A Corps of Engineers contract aimed at improving the timing and water quality of flows to south Florida’s St. Lucie Estuary has seen Miami-based Munilla Construction Management place soil cement for an 8-ft.-deep impoundment, curtailing loss of Hillsboro Canal water.

Private residential spending increased 1.9 percent for the month and 17.1 percent over 12 months. Simonson found that demand for multifamily residential construction grew at a particularly robust rate: 4.9 percent for the month and 26.7 percent year-over-year. Public construction spending rose 0.7 percent from a month before and 9.4 percent from 12 months earlier. Notably, demand for educational facilities grew by 2.4 percent for the month and 10.5 percent year-over-year.

Private nonresidential spending fell by 0.7 percent from August but remained 14.9 percent higher than a year earlier. While spending on sectors such as lodging, manufacturing and offices experienced significant year-over-year growth, Simonson noted, most categories saw a decline in spending between August and September as firms struggled to replace retiring workers amid growing labor market tightness. Bureau of Labor Statistics data indicate 479,000 unemployed construction workers in September, the smallest total for the month in 15 years.

“Demand may be starting to outstrip the industry’s capacity given the severe and growing shortages of available, qualified workers,” observed AGC CEO Stephen Sandherr, who urged elected and appointed officials to act on measures outlined in the association’s Workforce Development Plan designed to make it easier to prepare, recruit and train new workers.

CONSTRUCTION EQUIPMENT EXPORT SLIDE CONTINUES

Exports of U.S.-made construction equipment dropped 17.6 percent for the first three quarters of 2015 compared to January-September 2014, for a total $10.8 billion shipped worldwide. All world regions experienced declines, led by Africa and South and Central America, according to the Association of Equipment Manufacturers (AEM). The Milwaukee-based group cited U.S. Department of Commerce data it uses in global market reports for members.

The drop is reflected in January-September 2015 U.S. construction equipment exports by major world regions compared to figures for the same period the prior year:

South America declined 28 percent, or a total $1.4 billion;

Europe dropped 11 percent, or $1.4 billion;

Asia decreased 10 percent, or $1.4 billion;

Central America fell 21 percent, or $1.1 billion;

Australia/Oceania declined 5 percent to $645 million; and,

Africa decreased 36 percent to $611 million.

The top countries buying the most U.S.-made construction machinery during the first three quarters of 2015 (by dollar volume) were:

1. Canada—$4.4 billion, down 15 percent.

2. Mexico—$906 million, down 23 percent.

3. Australia—$602 million, down 3 percent.

4. Chile—$388 million, down 11 percent.

5. Brazil—$347 million, down 39 percent.

6. Peru—$267 million, down 26 percent.

7. South Africa—$264 million, down 50 percent.

8. Belgium—$230 million, down 34 percent.

9. China—$214 million, down 25 percent.

10. United Arab Emirates—$182 million, up 57 percent.

Notes AEM Director of Market Intelligence Benjamin Duyck, the third quarter of 2015 marked the 11th consecutive such period that U.S. construction equipment exports experienced year-over-year declines. According to AEM’s third-quarter North American Construction Equipment Industry Conditions Trends Report initial results, 35 percent of survey exporters indicated they experienced a decrease in exports, while 50.9 percent of respondents felt the market had remained stable.

Contrary to the second quarter of 2015, imports also declined—5.71 percent, year over year. Declining imports is a bigger signal to the U.S. market, especially now that imports are relatively cheaper under the stronger dollar. In the third-quarter AEM industry conditions survey, 42.3 percent of respondents indicated U.S. demand for equipment was lower this quarter vs. last year, while 30.7 percent felt the market remained stable. For the next 12 months, overall growth is still expected.

While the global environment is still positive for construction and construction equipment, one of the bigger clouds could be the Chinese market. It is the United States’ ninth-largest export market for construction equipment and it declined 25 percent year to date. Another trouble spot is Brazil, which confirmed in late 2015 that its economy was going deeper into a recession after three consecutive quarters of GDP contraction. Exports to Canada, the largest trading partner for the U.S., also decreased, by 15 percent through the third quarter, although Statistics Canada recently reported that the country’s economy returned to quarterly growth.

While it is hard to pinpoint the exact cause of the declining exports, AEM officials note, some of the possible explanations may be the difficulties in exporting equipment with engines that require Ultra Low Sulfur Diesel; strengthening local manufacturing industries; and, a strong U.S. dollar making domestic manufacturers less competitive. While exports might continue to slump, the association will also be tracking domestic equipment demand and imports.

The Construction Equipment Global Markets Export report and select other reports are available through the AEM store (www.safetymaterials.org). AEM members may access the global report on the main www.aem.org site through the Market Intelligence section.

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